SFT Protocol

Description

The SFT protocol is a set of compliance-oriented smart contracts, written in Solidity for the Ethereum blockchain, that allow for the tokenization of debt and equity based securities. It provides a robust, flexible framework allowing issuers and investors to retain regulatory compliance throughout primary issuance and multi-jurisdictional secondary trading.

How It Works

SFT is designed to maximize interoperability between different network participants. Broadly speaking, these participants may be split into four categories:

• Investors are entities that have passed KYC/AML checks and are are able to hold or transfer security tokens.
• Issuers are entities that create and sell security tokens to fund their business operations.
• Registrars are trusted entities that provide KYC/AML services for network participants.
• Custodians are trusted entities that may hold tokens on behalf of multiple investors and facilitate secondary trading of tokens.

The protocol is built with two central concepts in mind: identification and permission. Each investor has their identity verified by a registrar and a unique ID hash is associated to their wallet addresses. Based on this identity information, issuers and custodians apply a series of rules to determine how the investor may interact with them.

Issuers, registrars and custodians each exist on the blockchain with their own smart contracts that define the way they interact with one another. These contracts allow different entities to provide services to each other within the ecosystem.

Security tokens in the protocol are built upon the ERC20 token standard. Tokens are transferred via the transfer and transferFrom methods, however the transfer will only succeed if it passes a series of on-chain compliance requirements. A call to checkTransfer returns true if the transfer is possible. The base configuration includes investor identification, tracking investor counts and limits, and restrictions on countries and accredited status. By implementing other modules a variety of additional functionality is possible so as to allow compliance to laws in the countries of the issuer and investors.

Components

The SFT protocol is comprised of four core contracts:

1. SecurityToken

   • ERC20 compliant token contract
   • Intended to represent a claim to ownership of securities
   • Permissioning logic to enforce compliance in all token transfers
   • Modular design allows for optional added functionality

2. IssuingEntity

   • Owner contract for tokens created by the same issuer
   • Handles common compliance logic for all the issuer's tokens
   • Modular design allows for optional added functionality
   • Multi-sig, multi-authority design provides increased security and permissioned contract management

3. KYCRegistrar

   • Whitelists that provide identity, region, and accreditation information of investors based on off-chain KYC/AML verification
   • May be maintained by a single entity or a federation across multiple jurisdictions
   • Multi-sig, multi-authority design provides increased security and permissioned contract management

4. Custodian

   • Contracts that represent an entity approved to hold tokens on behalf of multiple investors
   • Interacts with IssuingEntity to provide accurate on-chain investor counts
   • Intended to be used by broker/dealers and exchanges
   • Modular design allows for optional added functionality
   • Multi-sig, multi-authority design provides increased security and permissioned contract management

Documentation

The Yellow Paper provides a more detailed overview of how the SFT Protocol is structrued.

In-depth documentation is hosted at Read the Docs.

Develoment Progress

The SFT Protocol is still under active development and has not yet undergone a third party audit. Please notify us if you find any issues in the code. We highly recommend against using these contracts prior to an audit by a trusted third party.

Testing and Deployment

Unit testing and deployment of this project is performed with Brownie.

Getting Started

See the Getting Started page for in-depth details on how to deploy the contracts so you can interact with them.

To setup a brownie test environment:

brownie console
>>> run('simple')

This runs deployments/simple.py which:

• Deploys KYCRegistrar from accounts[0]
• Deploys IssuingEntity from accounts[1]
• Deploys SecurityToken from accounts[1] with an initial total supply of 1,000,000
• Associates the contracts
• Approves accounts[2:8] in KYCRegistrar, with investor ratings 1-2 and country codes 1-3
• Approves investors from country codes 1-3 in IssuingEntity

From this configuration, the contracts are ready to transfer tokens:

>>> SecurityToken[0].transfer(accounts[2], 1000)
>>> SecurityToken[0].transfer(accounts[3], 1000, {'from': accounts[2]})

License

This project is licensed under the Apache 2.0 license.